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 European equities shrugged off a sharp sell-off in Asian and U.S.
markets overnight, clawing off one-month lows and led by euro zone
banks, seen as the big winners of the European Central Bank's
measures to prop up inflation and kick-start growth.
U.S. stock index futures pointed to a slightly firmer start on Wall
Street after Thursday's sharp selloff triggered by Apple Inc and the
rallying dollar.
The dollar index, which tracks the greenback against a basket of
major currencies, edged up to 85.278, not far from a four-year high
of 85.485 hit on Thursday.
The dollar is on track for its 11th successive weekly rise,
something it has not achieved in four decades.
"It's Friday and so we may see some consolidation, but in general
the dollar has broken through a number of long-term levels, so
there's scope for us to go further before we meet much resistance,"
said Neil Mellor, a strategist with Bank of New York Mellon in
London.
"Against the euro we have a forecast in the low $1.20s for a year's
time, but the way things are going we could get there fairly
quickly."
The dollar has been driven higher by the divergent monetary policy
outlooks between a rate-hike-contemplating Fed and an ECB and Bank
of Japan that are mulling further stimulus.
The yield difference between 10-year U.S. Treasuries and German
Bunds reached its widest in nearly 15 years on Thursday, keeping
pressure on the euro.
High bond yields tend to attract more fund inflows as bond
investments account for a big chunk of international capital flows.
The euro was steady on the day at $1.2746, after falling as low as
$1.26955 on trading platform EBS on Thursday, its lowest since
November 2012.
ECB HOPES
European stocks were initially caught in Wall Street and Asia's
downdraft but quickly recovered as banking stocks extended gains.
The FTSEurofirst 300 index of top European shares rose 0.3 percent
at 1,376.61 points, retreating from its lowest level in almost a
month hit the previous day.
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Investors increasingly expect the region's banking stocks to rally
in the next few months as the ECB steps up its efforts to support
the currency bloc's anaemic growth.
Societe General equity analysts recommend buying European banks, as
the central bank's asset quality review next month is set to bring
more visibility on the sector.
"It's a theme that many clients want to play, but not necessarily
directly with long positions on the cash market. There's been a big
rise in the open interest in calls on banking stocks in the past few
months," said Vincent Cassot, head of equity derivatives strategy at
Societe Generale.
Brent crude nudged up to $97 a barrel but was still headed for its
biggest monthly drop since April 2013 as rising supplies outweighed
fears that U.S.-led strikes against Islamist militants in Syria and
Iraq will disrupt oil production.
Slowing economic activity in Europe and Asia has dampened demand for
oil, while supply is rising.
Spot gold added about 0.3 percent to $1,226.40 an ounce, after
rebounding off Thursday's session low of $1,206.85 an ounce, which
was its weakest level since Jan. 2. It looked set to snap a
three-week losing streak, though dollar strength kept it in danger
of breaking below $1,200 an ounce.
(Additional reporting by Patrick Graham and Blaise Robinson in
Paris; Editing by Catherine Evans)
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